Launched in early 2009, HAMP was supposed to offer permanent home loan modifications to help as many as 3 to 4 million homeowners avoid foreclosure. But as of March 31, only 862,279 homeowners had active permanent HAMP loan modifications, and that figure was expected to decline since more than 312,000 homeowners had already redefaulted on a HAMP permanent modification.

“For these homeowners, the HAMP permanent mortgage modification they received was not sustainable,” the SIGTARP report stated.

‘Alarming’ rate of redefaults

The report also found that redefaults were “increasing at an alarming rate,” and that the longer a homeowner remained in HAMP, the more likely he or she was to redefault out of the program.

The oldest HAMP permanent modifications, which dated back to the third quarter of 2009, had redefaulted at a rate of 46.1 percent. The second-oldest permanent modifications, which dated back to the fourth quarter of 2009, had redefaulted at a rate of 39.1 percent. Quarterly redefault rates for HAMP permanent modifications from 2010 ranged from 28.9 percent to 37.6 percent.

“Redefaulted HAMP modifications often inflict great harm on already struggling homeowners when any amounts previously modified suddenly come due. When the homeowner cannot pay it, they lose their home to foreclosure, which has a devastating impact on families, neighborhoods and the economy,” the report stated.

HAMP offers loan servicers and lenders incentive payments to encourage them to modify mortgages, so homeowners who are in default or at imminent risk of default will have modified payments that are affordable and sustainable for them. As of February 28, 97 percent OF HAMP loan modifications included a lower interest rate, 62 percent included a longer term, 33 percent included principal forbearance and 13 percent included principal reductions, the report said.

‘Meaningful relief’?

Federal officials seem unwilling to acknowledge these troubling statistics.

In a recent U.S. Department and Housing and Urban Development (HUD) statement, Treasury Assistant Secretary for Financial Stability Tim Massad said that HAMP “continues to offer struggling families meaningful relief to avoid foreclosure.”

HUD noted that as of March 31, more than 1.1 million homeowners had received a permanent modification through HAMP. But the SIGTARP report said that more than 2 million HAMP modifications had been started as of that date and 54 percent had subsequently been cancelled and removed from the program.

That means more homeowners missed out on a HAMP modification than received one.

“Underlying interest rates are moving higher, dragging mortgage rates along with them,” said Keith Gumbinger, vice president of HSH.com. “This has come as the result of somewhat better conditions in the labor market, helping investors feel more confident that the recovery will overcome its recent soft patch.”

Although not a surprise, the Federal Reserve has now reportedly developed a plan to slow purchases of mortgage-backed securities and Treasury bonds at some point, tapering those purchases as the economy becomes increasingly healthy. The presence of this plan is causing investors to move money back into riskier investments, such as stocks, much as they did in January and February, as some believe the end of these extraordinary supports may be nearer than not.

“The Fed only recently announced that it might even consider increasing the size of QE3, not tapering it”, adds Gumbinger. “With inflation low and the economy still stumbling along, there’s no reason to worry that these support programs will end anytime soon, but it is prudent to have a plan in place for when the time comes.”

Mortgage rates up, applications down

Once again, the weekly mortgage applications report reflected the weekly movement in mortgage rates from the week prior. For the week ending May 10, HSH.com reported that economic optimism gave way to higher mortgage rates, reversing a trend that found record lows just the week before.

The Mortgage Bankers Association’s Market Composite Index, a weekly measurement of mortgage application volume, fell by 7.3 percent for the week ending May 10. The purchase share of applications was down 4 percent and the refinance index fell by 8 percent.

Refinances continued to make up 76 percent of all mortgage applications.

The Fed’s survey also noted another easing in standards for “prime residential mortgages,” with about 8 percent of respondents to the survey noting easier terms and conditions. Given that something on the order of 90 percent of loans today kowtow to the still-stiff standards of Fannie Mae, Freddie Mac and the FHA, this leads us to a few thoughts, speculations and conclusions.

No. 1: Non-conforming terms are easing.

First on the thought list is that non-conforming terms (jumbos, etc.) are the most likely to be starting to open up. Of course, that can also be true for ARMs, since lenders tend to like to put them on their books directly and so have more complete underwriting control.

Despite the regulatory mess which the result of yet unformed/unclear/uncompleted Dodd-Frank rules, non-conforming and jumbo securitization markets are picking up steam, making lenders more confident in their ability to shed risk by selling products rather than keeping them.

No. 2: Overlays are diminishing.

The second is that even with tight standards, many lenders had instituted “overlays”–add-ons to minimum-credit requirements, down payments, etc.–and some of the loosening might be coming in the form of a reduction or elimination of them. That means that somewhat more marginal borrowers can get a crack at today’s rock-bottom mortgage rates.

With so many housing markets now recovering, it is becoming increasingly unjustifiable to charge an “Adverse Market Delivery Fee,” a 0.25 point surcharge added to all mortgages when the markets collapsed several years ago. The original fee first targeted certain areas experiencing trouble, and was later expanded to the entire market. Since the entire market is no longer “adverse,” the fee should go.

No. 3: It’s a combination of factors.

The last conclusion is perhaps a combination of factors:

• More competitive stances by lenders who are trying to keep market share and profits flowing. A slowdown in business due to a bump in mortgage rates earlier this year is probably a harbinger for what lies ahead.
• It also may be that, now years after the crisis, that sufficient analysis has been done so as to better understand what constitutes a truly “risky” borrower.
• As well, a strong run of mortgage-banking profits may play a role, as with home prices again rising, the risk of loss, both present and future, is diminished.

Fannie Mae reported record profits last week, too, making true reform of the GSEs somewhat less likely anytime soon, since those profits are all being turned back to the Treasury. However, with fantastic profitability comes pressure to do more for beleaguered homeowners and homebuyers, and it wouldn’t surprise us at all to see some tweaking to their underwriting guidelines before long.

There were not many fresh additional economic signals out last week to work with, but with the better-than-hoped for April employment report driving stock markets higher, less might actually be better, since rising equity prices often drag interest rates upward with them.

That was much the case last week, as popular market indicators like the Dow Jones Industrial Index posted new record highs. Given the optimism already expressed here, it does make one wonder what will happen when the economy really begins to fire on all cylinders.

Regardless, the chase for returns higher than the puny ones seen on safe-haven Treasuries is a bit of a siren song for cash, and money flowed out of bonds and into stocks last week, lifting mortgage rates. A portion of the late winter-early spring decline in mortgage rates was erased last week, and some more seems likely.

Mortgage rates on the rise

HSH.com’s broad-market mortgage tracker–our weekly Fixed-Rate Mortgage Indicator–found that the overall average rate for 30-year fixed-rate mortgages (conforming, non-conforming and jumbos) rose by seven basis points (0.07 percent) to 3.68 percent, rising from 2013 lows.

Meanwhile, the overall average rate for 15-year fixed-rate mortgages (conforming, non-conforming and jumbos) managed just a five basis point lift (0.05 percent) to 2.91 percent for the week.

FHA-backed 30-year FRMs followed along with a five basis point increase of their own, trekking to an average rate of 3.31 percent, while the most popular ARM–the 5/1 Hybrid–stayed closer to the previous week’s all-time record lows with just a two hundredths of a percentage point (0.02 percent) blip to 2.59 percent for the week.

Higher mortgage rates this week

Mortgage rates moved upward a little last week and seem poised to do so again this week.

While we are presently below the peak for rates so far this year, we won’t retest them this week, but we may wander back there before too long, should the good economic news persist.

Although that may trim the value of a refinance or two, the big picture hasn’t changed or diminished: mortgage rates will remain near record low levels, and if the Fed can be believed, may be becoming easier to get, too.

Below is a post by Krissy Schwab, first appearing on our partner site the Zing blog at Quicken Loans:

I really love the area I live in. It’s quiet and a close drive to pretty much everything I need. But I long for the days when I lived in Ypsilanti because I could pretty much walk everywhere. If I felt like meeting up with some friends and grabbing a beer, I just walked a few doors over. I woke up at 8:45 a.m. to get to class at 9 a.m. My favorite part though, was never having to deal with traffic jams or parking on campus. I rarely, if ever, used my car.

In many ways, living in a walkable part of town was incredibly convenient. These areas aren’t just for college students though. Walkable neighborhoods have tons of benefits for home buyers.

What Is Walkability?

Walkability is a score that takes your city or address and evaluates its proximity to restaurants, parks, libraries, shopping centers, grocery stores, schools, public transit and a host of other amenities. The closer you are to them the higher the score.

Scores are broken down into five separate categories:

• 0–24 means you must own a car to run errands.
• 25­–49 means there are a handful of places near you, but you still require a car.
• 50­–69 means your area is fairly walkable, but you still need a car.
• 70­–89 means you can walk to most a majority of places.
• 90–100 means you do not need a car at all.

You can find out the walkability of your future or current home at Walk Score. They also offer scores for public transit and biking.

Benefits of Living in Walkable Areas

Purchasing a home in a walkable area does cost you a bit more money, but it’s definitely worth the extra investment. From your own health to the environment, experts agree that living in a walkable area has great benefits.

Resale value

A recent study by CEOs for Cities called “Walk the Walk” notes, “Houses with the above-average levels of walkability command a premium of about $4,000 to $34,000 over houses with just average levels of walkability in the typical metropolitan areas studied.” This may bump up the initial buying price, but the resale value of living in a walkable neighborhood works to your advantage when you decide to sell.

Health benefits

Walkable communities are often more active areas and can keep you and your family healthier. A University of Utah study notes, “A man of average height and weight (6 feet, 200 pounds) weighed 10 pounds less if he lived in a walkable neighborhood versus a less walkable neighborhood. A woman of average size (about 5-foot-5, 149 pounds), weighed six pounds less.”

Positive economic impact

Walkable communities also draw in local businesses and investors. Local Government Commission uses Lodi, California, as the poster child for economic growth in walkable communities. They spent more than $4 million dollars reworking their downtown area to make it more pedestrian friendly. This, along with development incentives, drew 60 new businesses to the area, dropped the vacancy rates from 18% to 6% and increased downtown sales tax revenues by a third.

Spend less money on your car

If you aren’t driving as much, naturally you’ll probably be spending less money on gas for your car. Since you aren’t also racking up the miles, it’ll also help your car last longer and lower your maintenance costs. Depending on how much you drive, that could be hundreds of dollars back in your pocket. Who knows, you may not need a car all together.

Lower pollution levels

Since foot traffic doesn’t generate mass amounts of carbon dioxide, walkable communities have a positive impact on the environment. Less traffic congestion means reductions in air, water and noise pollution. Most of these areas are also riddled with trees, which also offer tons of great benefits.

Despite the increase in purchase price, buying a home in a walkable community has several benefits and may increase the resale value of your home. Mike Mathieu, founder of Walk Score, says, “’Walking the Walk’ shows definitely what we’ve always believed – walkable neighborhoods continue to be a good investment, and are one of the simplest and most effective solutions to fight climate change, improve health and strengthen our communities.”

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The appointment of Rep. Mel Watt, D-N.C., to head of the Federal Housing Finance Agency, the overseer of Fannie Mae and Freddie Mac, could have a substantial impact on the Home Affordable Modification Program (HAMP).

Rep. Watt supports principal reductions, or at least he has supported them in the past. Acting head of the FHFA, Ed DeMarco, has been mostly opposed to principal reductions, causing some to call for his job.

While some lawmakers say principal reductions will save taxpayers money in the long run, it’s hard to argue against the fact that principal reductions will require taxpayers to pony up big time over the short term.

In an interview, Rep. Watt said he’s not sure what his stance would be regarding principal reductions, saying he was “in a different position at that time” he signed his support for principal reductions.

“I was a member of Congress advocating for a different constituency with a different set of responsibilities,” he said in a recent interview. “My responsibility as a director would be to evaluate all of the information and make a sound decision. It could very well lead me to the same conclusion that the existing acting director has reached. Again, we don’t even know the issue will continue to be timely.”

More money coming to Goldman, Morgan Stanley customers

If you’re one of the 96,000 borrowers whose mortgage was serviced by Goldman Sachs or Morgan Stanley and you already received a check as part of the national mortgage settlement, you might have noticed the check was a little light.

If so, you’re correct. The independent firm responsible for handling the Independent Foreclosure Review payments, Rust Consulting, made an error when they mailed out checks last week. Both the Federal Reserve and Rust Consulting have acknowledged the error. Rust Consulting says additional checks will be mailed to Goldman and Morgan Stanley customers on May 17.

For a full list of the correct total payments, click here.

Fannie sends more money to the Treasury

Speaking of checks, Fannie Mae announced Thursday it will be sending $59.4 billion to the Treasury Department as they continue to pay back approximately $116 billion they received since 2008 when they entered into conservatorship.

Reuters reports that by the end of June, “Fannie Mae will have paid $95 billion in dividends to Treasury for the government’s stake, leaving the net cost of its bailout at about $21 billion.”

There has been a lot of talk recently about how Fannie Mae and Freddie Mac will transition away from full government control. While, there are proponents for each side, the return to profitability will certainly leave some to say, “If it’s not broke, don’t fix it.”

“After a pretty solid report on hiring in March, and a decline in the unemployment rate to 7.5 percent, fixed-rate mortgages broke a six-week slide,” said Keith Gumbinger, vice president of HSH.com. “Although some firming of fixed rates will continue this week, we will remain very near record lows, and certainly well within 2013 ranges.”

The latest Federal Reserve survey of Senior Loan Officers noted that lending conditions for mortgage borrowers eased slightly in the first quarter of 2013. Some of that modest easing may be reflected in more aggressive pricing for ARMs, which continued their own downward trend this week, pressing deeper into record low territory.

“Although few ARMs are being originated at the moment, lenders tend to keep them on their books, so they retain full control over the price and terms of the product”, adds Gumbinger. “Within reason, this allows lenders to price products at very competitive rates. At today’s rates, and for certain borrowers, a 5/1 ARM may be a very good choice.”

According to the latest figures from the Mortgage Bankers Association, the share of ARM applications increased during the week ending May 3, moving up to 4 percent of total applications.

Mortgage activity is up

On a weekly basis, mortgage activity was up all around at the end of last week. It’s not all that surprising since mortgage rates set all types of records during the week ending May 3.

According to the Mortgage Bankers, purchase applications were up 2 percent, reaching their highest level since May 2010. Refinance applications increased 8 percent and sit at their highest point since December 2012. “The gain in the Refinance Index was due to increases in both the conventional and government refinance indices of 8.8 percent and 5.7 percent respectively,” reported the MBA in their weekly release.

Refinances now make up 76 percent of all applications. HARP refinances occupy 30 percent of refinance applications, a 4 percent decline from the previous week.

It makes you wonder, “Will we even need the HARP refinance by 2014?”

That’s because the Federal Housing Finance Agency (FHFA) has directed Fannie Mae and Freddie Mac to limit future mortgage purchases to those that:

• Meet the federal definition of a “qualified mortgage” (QM)
• Meet a special or temporary QM definition
• Are exempt from the so-called ability-to-repay rule

Loans Fannie, Freddie Won’t Buy

In effect, the directive means neither Fannie Mae nor Freddie Mac will purchase a loan that’s subject to the ability-to-repay rule if the loan:

• Isn’t fully amortizing, such as an interest-only loan
• Has a term that’s longer than 30 years, such as a 40-year mortgage
• Includes points and fees that exceed 3 percent of the loan amount or other such limits for small-balance loans set forth in the rule

The QM definition and ability-to-repay rule are required by the Dodd-Frank Wall Street Reform and Consumer Protection Act.

The directive will take effect Jan. 10, 2014 and is intended to shrink the entities’ “market footprint,” according to FHFA.

The CFPB has encouraged lenders to originate loans beyond those Fannie and Freddie will purchase. The extent to which they will do so remains to be seen.

Loans Fannie, Freddie Will Buy

Both Fannie and Freddie will continue to purchase other loans that meet their guidelines, including loans processed through their automated underwriting systems and loans that allow the borrower to have a debt-to-income ratio (DTI) that’s higher than 43 percent. The latter aren’t considered to be QMs unless they can be purchased by Fannie and Freddie under the special or temporary QM definition.

The ability to repay rule, finalized earlier this year by Consumer Financial Protection Bureau (CFPB), grants lenders certain liability protections for loans they originate that meet the QM criteria.

The rule generally requires lender to make a reasonable, good faith determination of the borrower’s ability to repay the loan based on the borrower’s income or assets, employment, mortgage payment, debts and credit history.

That might sound simple, but it’s not, and the CFPB has issued multiple documents to explain it. Among them are the final rule, 804 pages, a separate small-lender compliance guide, 45 pages, and a comparison chart that attempts to show both the ability-to-repay and QM requirements.

Most borrowers won’t be affected by these new requirements because exotic loans have all but disappeared from mainstream mortgage lending. Borrowers who are seeking unconventional or riskier types of loans might find their choices more limited than they were some years ago.

A cascade of fresh economic data came out last week, variously reflecting economic conditions in both March and April. A “big picture” look at the data might lead one to an “economy is still troubled” conclusion despite the current 2.5 percent run rate for Gross Domestic Product.

Mortgage rates and other interest rates had been on a flat to easing trend for much of last week as most of the data did little to dispel the notion that we remain in a rough patch, one even the Federal Reserve implicitly acknowledged at the close of its meeting on Wednesday.

There was plenty of downbeat news available last week to create additional cause for concern, but one or two shining reports took the gloom out of the market, at least for now.

Mortgage rates are likely to rise somewhat this week as a result.

Mortgage rates set records last week

HSH.com’s broad-market mortgage rate tracker found that the overall average rate for 30-year fixed-rate mortgages (conforming, non-conforming and jumbo) eased by four basis points (0.04 percent) to 3.61 percent, another new low for 2013 and close to “all-time” record lows set last year.

The overall average rate for 15-year fixed-rate mortgages (conforming, non-conforming and jumbo) dropped by three basis points (0.03 percent) to 2.86 percent for the week, another actual all-time low.

FHA-backed 30-year fixed-rate mortgages followed along with a decline of two basis points (0.02 percent), falling to an average rate of 3.26 percent (record low by two basis points) and was accompanied by a three-hundredth of a percentage point slip in the overall average rate for 5/1 Hybrid ARMs, which trekked down to an average 2.57 percent–another new low water-mark for the most popular ARM.

Mortgage rates will move away from record lows

As far as interest rates go, it took an accumulation of fair economic news over a period of months and some considerable market optimism about the economy’s future to bump them up during the late winter and early spring.

That trend did an about face over the last six weeks or so as the economic news turned decidedly darker. Is the positive employment report the start of a new spate of solid news, or simply a bright spot in an otherwise dim sky? One report doesn’t change the overall trend, but may be enough to allay concern about a deeper downturn forming.

For the moment, the brighter employment picture on last Thursday and Friday was sufficient to cause a reversal in the decline in interest rates. The influential 10-year Treasury bounced upward by more than a tenth-percentage point last Friday, so it’s to be expected that at least some of that will show in mortgage rates as we round into this week. Many popular mortgages have been easing to record or near record lows, but will move away from them this week, when a 5 or 6 basis point rise in HSH.com’s fixed-rate mortgage indicator seems most likely.

So far, 2013 has been an up-and-down year for mortgage rates. After cresting in March, rates for average for 30-year conforming fixed-rate mortgages have sunk by about a quarter percentage point, currently just above the low point for this year.

While the move between recent peaks and valleys may be more psychological than anything else – the change translates to only about $12.50 per month for a $100,000 30-year fixed-rate mortgage – mortgage rates, even at their yearly high, remain at historically low levels.

Here’s a look at some factors helping to keep a lid on mortgage rates:

The Federal Reserve: Arguably the most influential factor at the moment, the Fed has been instrumental in keeping downward pressure on interest rates. Purchasing up to $45 billion in Treasury bills per month, along with $40 billion in mortgage-backed securities per month, will allow the central bank to manipulate interest rates for some time to come. How long the Fed will massage mortgage rates is an open question, with some members pushing to reduce this support as early as this summer.

U.S. economy: Whether strong or weak, the economy’s influence over mortgage rates is powerful and constant. A strong economy produces widespread demand for mortgage credit and may create inflation, while a weak economy does the opposite. The Fed’s current programs are an attempt to spur economic growth and even create a little inflation. To the extent that the Fed succeeds and the economy improves, the result will ultimately be higher interest rates. For the moment, the struggling economy is prompting investors to head for the safety of government-backed debt, pushing Treasury yields down and dragging mortgage rates right along.

Foreign concerns: Concerns of all stripes overseas have been another factor keeping U.S. interest rates low. Investors around the world have expressed concern over political issues in North Korea and Syria and financial issues in the Eurozone by stashing their money in the safest place they can find, usually U.S.-backed Treasury debt. Again, this serves to push yields down further than they would otherwise be.

Demand: Mortgage rates also tend to ease when demand tapers off, often the consumer reaction to higher interest rates. Less demand loosens up the mortgage pipeline to a degree, and lenders may need to price loans somewhat more aggressively in order to attract more business. A steady period of rising rates may be followed by a period of more aggressively priced loans, which in turn can help keep mortgage rates from rising as much as they otherwise would, at least for a time.

Inflation: Inflation affects interest rates on mortgages, treasuries and other fixed-income investments by cutting into investor returns. Thus, when inflation is high, lenders must raise rates in order to keep their profit margins in line. The current lack of inflation concerns has helped to keep mortgage rates from rising more than they otherwise would, and more importantly, helps provide them with more room to fall.

These lids won’t stay sealed forever. Should the fiscal or political climate improve, money would tend to move out of these safe-havens in search of greater returns, but to the benefit of mortgage borrowers, the world remains unsteady in the meantime.